Exercise 10-15 Dropping or Retaining a Segment [LO10-2] Thalassines Kataskeves,
ID: 2521869 • Letter: E
Question
Exercise 10-15 Dropping or Retaining a Segment [LO10-2]
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.
Compute the increase or decrease of net operating income if the product line is continued or discontinued. (Decreases should be indicated by a minus sign.)
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
Explanation / Answer
Income Increaseor (Decrease)
Sales
410000
0
- 410000
Variable expenses:
Variable manufacturing expenses
133000
0
133000
Sales commissions
52000
0
52000
Shipping
15000
0
15000
Total variable expenses
200000
0
200000
Contribution margin
210000
0
-210000
Fixed expenses:
Advertising
27000
0
27000
Depreciation of equipment (no resale value)
104000
104000
0
General factory overhead
50000
50000
0
Salary of product-line manager
113000
0
113000
Insurance on inventories
7000
0
7000
Purchasing department
43000
43000
Total fixed expenses
344000
197000
147000
Net operating loss
(134000)
(197000)
(63000)
(b) Would you recommend that the bilge pump product line be discontinued = No
Income Increaseor (Decrease)
Sales
410000
0
- 410000
Variable expenses:
Variable manufacturing expenses
133000
0
133000
Sales commissions
52000
0
52000
Shipping
15000
0
15000
Total variable expenses
200000
0
200000
Contribution margin
210000
0
-210000
Fixed expenses:
Advertising
27000
0
27000
Depreciation of equipment (no resale value)
104000
104000
0
General factory overhead
50000
50000
0
Salary of product-line manager
113000
0
113000
Insurance on inventories
7000
0
7000
Purchasing department
43000
43000
0Total fixed expenses
344000
197000
147000
Net operating loss
(134000)
(197000)
(63000)
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